Pound/Euro falls March 2012 forecast predictions

Friday 9th March 2012
Good morning. Why has Pound/Euro fallen? Yesterday the Pound fell against the Euro, and rose against the US Dollar. It was developments in Greece and the EU that drove rates, with renewed optimism over the EU economy strengthening the Euro and other riskier currencies such as Sterling. So, the Pound gained against many currencies, but fell against the Euro, as the charts below illustrate:

~Currency Movements on Thursday 8th March 2012~

Euro strengthens on optimism over Greece

The Euro gained strength yesterday, becoming more expensive to purchase. It was due to Greece making progress on their debt swap. Analysts said the euro may have scope for short-term gains on a positive outcome to the Greece deal.

As the market focused on events in Greece, European Central Bank President Mario Draghi said there were signs of stability in the euro zone economy, and basically stated Greece would be allowed to default if necessary. This gave renewed optimism about the EU economy, and as such the Euro gained strength, along with other riskier currencies such as Sterling. This is why Pound/Euro exchange rates have fallen March 2012.

ECB and BoE leaves interest rates on hold

As I predicted yesterday, both central banks left rates on hold, and the BoE decided not to pursue any further Quantitative Easing for the time being. It’s what the market expected, and so the decisions had little effect on exchange rates.

Going forwards, I think that at some point later this year, the ECB will make a rate cut which could weaken the Euro. Also the minutes to the BoE decision in 2 weeks time, will shed more light on if and when more QE will be on the way.

Today’s Data

We end the week with a host of UK data including the latest GDP estimate, Trade Balance, Industrial Production, Manufacturing Production and Producer Price Index figures. Germany also releases Trade Balance numbers and inflation data. Stateside there are unemployment data and more trade balance figures – also we have the all important non farm payrolls, which often has a big effect on GBP/USD rates.

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